-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NcN+BWfepoqoPfLusDXK3zb2QVJNA/z8KsVYQCtrSUhbAHSvinUcU2jaLxmdxZde IqyMjfTD42IZh+jPHt9rdQ== 0000316709-04-000020.txt : 20040720 0000316709-04-000020.hdr.sgml : 20040720 20040720165051 ACCESSION NUMBER: 0000316709-04-000020 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040630 ITEM INFORMATION: ITEM INFORMATION: Other events FILED AS OF DATE: 20040720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CHARLES CORP CENTRAL INDEX KEY: 0000316709 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 943025021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09700 FILM NUMBER: 04922532 BUSINESS ADDRESS: STREET 1: 120 KEARNY STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156277000 MAIL ADDRESS: STREET 1: 101 MONTGOMERY ST STREET 2: (SF120KNY-9) CITY: SAN FRANCISCO STATE: CA ZIP: 94104 8-K 1 body.txt BODY, JULY 20, 2004 EARNINGS RELEASE SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 July 20, 2004 Date of Report (Date of earliest event reported) THE CHARLES SCHWAB CORPORATION (Exact name of registrant as specified in its charter) Delaware 1-9700 94-3025021 (State or other jurisdiction Commission (I.R.S. Employer of incorporation or organization) File Number Identification Number) 120 Kearny Street, San Francisco, CA 94108 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (415) 627-7000 THE CHARLES SCHWAB CORPORATION Item 5. Other Events and Regulation FD Disclosure Effective July 20, 2004, David S. Pottruck resigned as President, Chief Executive Officer, and Director of The Charles Schwab Corporation (the Company). Also effective July 20, 2004, the Company's Board of Directors reappointed Charles R. Schwab as Chief Executive Officer; Mr. Schwab will continue to serve as Chairman of the Board of Directors. Item 12. Results of Operations and Financial Condition On July 20, 2004, The Charles Schwab Corporation issued a press release announcing its financial results for the quarter ended June 30, 2004. A copy of the press release is furnished as Exhibit 99.1 to this report. - 1 - THE CHARLES SCHWAB CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE CHARLES SCHWAB CORPORATION (Registrant) Date: July 20, 2004 /s/ Christopher V. Dodds ----------------- ---------------------------- Christopher V. Dodds Executive Vice President and Chief Financial Officer - 2 - THE CHARLES SCHWAB CORPORATION Exhibit Index 99.1 Press Release dated July 20, 2004 ("Schwab Announces CEO Resignation - Reports Quarterly Results - Posts Record Non-Trading Revenues") - 3 - EX-99 2 exhibit99.txt EXHIBIT 99.1, JULY 20, 2004 EARNINGS RELEASE Exhibit 99.1 FOR IMMEDIATE RELEASE CONTACTS: Media (San Francisco) Glen Mathison (415) 636-5448 Investors/Analysts Rich Fowler (415) 636-9869 SCHWAB ANNOUNCES CEO RESIGNATION REPORTS QUARTERLY RESULTS POSTS RECORD NON-TRADING REVENUES SAN FRANCISCO, July 20, 2004 - The Charles Schwab Corporation announced today that CEO David S. Pottruck has stepped down, effective immediately. Also effective immediately, the Company's Board of Directors has reappointed Charles R. Schwab to the CEO role; Mr. Schwab will continue to serve as Board Chairman. "During his two decades here at Schwab, David has been a valued partner to me and has worked tirelessly to help this Company pursue its vision," Mr. Schwab said. "As I see the opportunities ahead for Schwab, I want to underscore my confidence in the strength of our franchise, the value we provide our clients, the dedication of our employees, and the depth of our management team." "For nearly 30 years, Schwab's top priorities have been its clients and stockholders," Mr. Pottruck said. "And for 20 of those 30 years, I've been privileged to be part of the Schwab team, working with Chuck and some of the most talented, dedicated people in the investment world. But the last few years have been difficult in the securities markets, and I accept the Board's decision that it's time for me to step aside. It's been a great journey. After taking some time off with my family, I'll start thinking about the next step in my career." Also today, the Company announced that its net income for the quarter ended June 30, 2004 was $113 million. In comparison, the Company reported net income of $126 million for the second quarter of 2003 and net income of $161 million for the first quarter of 2004. For the first half of 2004, the Company's net income was $274 million, compared with $197 million earned during the same period in 2003. Three Months Ended Six Months Ended --June 30,-- % --June 30,-- % Financial Highlights 2004 2003 Change 2004 2003 Change - -------------------------------------------------------------------------------- Revenues (in millions) $1,112 $1,018 9 % $2,302 $1,918 20% Net Income (in millions) $ 113 $ 126 (10)% $ 274 $ 197 39% Diluted earnings per share $ .08 $ .09 (11)% $ .20 $ .14 43% After-tax profit margin 10.2% 12.3% 11.9% 10.2% Return on stockholders' equity 10% 12% 12% 10% - -------------------------------------------------------------------------------- In reviewing the second quarter, Mr. Schwab commented, "Mixed securities market returns, continuing geopolitical uncertainties and concerns about rising interest rates all weighed on client engagement during much of the quarter. Client daily average revenue trades declined by 20% from the first quarter average, and outstanding margin loans ended the quarter at $9.1 billion, unchanged from month-end March. Excluding a $6.0 billion non-recurring outflow in June relating to our mutual fund clearing business, new and existing clients brought $12.7 billion in net new assets to the Company during the second quarter, and we ended the quarter with $998 billion in client assets, an 18% increase over June 2003." "Our non-trading revenues - asset management and administration fees, net interest income, and other revenues - reached a record level in the second quarter of 2004, evidence of our continued success in building stronger client relationships and diversifying our sources of revenue," Mr. Schwab continued. "The sharp downturn in trading activity overall, however, caused our trading revenues to decline by 26% from the prior quarter, leading to a 7% sequential decline in total revenues. While our ongoing efforts to sustain a significant level of marketing investment and improve employee bonuses limited our sequential decline in expenses to 1%, our firm-wide cost leadership effort is well under way. We remain on track to identify and implement $150 to $200 million in annualized cost savings by the end of this year, with the expectation that the full benefit of these savings will be realized in 2005." Mr. Schwab said, "In the second quarter, we strengthened our value proposition - delivering great service at a great price - by lowering online equity trade commissions for many clients within the Schwab Personal Choice(TM) program. The new pricing, which was rolled out nationwide on June 15, provides clients with the opportunity to reduce their trading costs as they increase either their asset levels or trading activity at Schwab. Even with the recent pullback in client engagement, investors continue to seek us out for access to help and advice. Enrollments in our newest advised offerings are still running at about 400 per week, and the number of clients using our Schwab Private Client(TM) service has grown to about 19,700 by month-end June 2004, an increase of 74% from the second quarter of 2003. Net new client assets in the 1.4 million accounts at Schwab with an ongoing advisory component - including our new Schwab Advised Investing(TM) services, Schwab Private Client, accounts managed by independent investment advisors (IAs), and U.S. Trust accounts - totaled $10 billion during the second quarter of 2004, and total assets in these accounts equaled $465 billion at quarter-end, up 25% from June 2003." "Our Services for Investment Managers (SIM) group continues to offer competitive pricing coupled with unparalleled service and support," the Chairman commented. "Concurrent with our reduced pricing for individual investors, we extended $19.95 standard pricing for online equity trades to most IAs. In addition, IA clients with at least $1 million custodied at Schwab now have access to a flat $9.95 commission rate for online equity trades. Also during the quarter, we launched the PortfolioCenter Relationship Manager(TM), a powerful contact management and office workflow automation system designed to assist IAs in strengthening client and prospect relationships. Client referrals to IAs through our Schwab Advisor Network(R) program totaled just under 4,600 during the second quarter of 2004, down by 5% from the prior quarter. At month-end June, client assets at Schwab associated with IA referral programs equaled $22 billion, and total client assets associated with SIM were $310 billion, up 45% and 25%, respectively, from a year ago." Mr. Schwab added, "Schwab referred over 450 potential clients to U.S. Trust in the second quarter, compared with over 350 in the second quarter of 2003. At month-end June 2004, client assets at U.S. Trust associated with this referral program totaled $4.0 billion and total client assets were $137 billion, up 73% and 20%, respectively, from June 2003." "During the second quarter, Corporate Services attracted another $1.9 billion in net new assets to our retirement plan offerings," Mr. Schwab also noted. "Total client assets in employer-sponsored retirement plans at Schwab now total $121 billion, up 21% from the second quarter of 2003." The Chairman said, "Our Capital Markets group continued to expand its capabilities during the second quarter. For institutional clients, we launched the Passive Indication Network(TM), a system that helps traders access the substantial institutional and retail order flow of the Schwab Liquidity Network(TM) anonymously and with minimal market impact." Mr. Schwab continued, "For clients interested in fixed income securities, we introduced Standard & Poors Ratings Xpress(TM), a tool that provides in-depth information on a bond's credit rating, including credit profiles of bond issuers, the rationale behind upgrades and downgrades, analysts' outlooks and recent news reports. Total client assets held in fixed income securities equaled $149 billion at month-end June, up 14% from a year ago. Also during the quarter, Schwab Bank, N.A. celebrated its one-year anniversary. We originated about $350 million in first mortgages during the second quarter and outstanding home equity loans reached just under $600 million by month-end June. The bank ended the second quarter with total assets of $3.8 billion, up 16% from month-end March 2004. In addition, the bank's loan commitments at quarter-end included approximately $170 million in first mortgages and $880 million in unused home equity lines." A combined Investment Community and Media conference call with CFO Chris Dodds has been scheduled for 9:30 a.m. EST (6:30 a.m. PST) to discuss today's announcements. The call-in number is 888-679-0908 (International calls: 706-679-7532). Reference - Conference ID# 8901300. Please call five to ten minutes prior to the scheduled start time. A replay of the call will be available at 800-642-1687 or 706-645-9291 later today. Reference - Conference ID# 8901300. The Charles Schwab Corporation (NYSE / Nasdaq:SCH), through Charles Schwab & Co., Inc. (member SIPC/NYSE), U.S. Trust Corporation, CyberTrader, Inc. and its other operating subsidiaries, is one of the nation's largest financial services firms in terms of client assets. The Charles Schwab, U.S. Trust and CyberTrader Web sites can be reached at www.schwab.com, www.ustrust.com and www.cybertrader.com, respectively. ###
THE CHARLES SCHWAB CORPORATION Consolidated Statement of Income (In millions, except per share amounts) (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Three Months Six Months Ended Ended June 30, June 30, 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Asset management and administration fees $ 514 $ 445 $1,019 $ 873 Commissions 286 313 676 553 Interest revenue 276 244 539 483 Interest expense (52) (64) (105) (128) ------- ------- ------- ------- Net interest revenue 224 180 434 355 Principal transactions 40 43 92 76 Other 48 37 81 61 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,112 1,018 2,302 1,918 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses Excluding Interest Compensation and benefits 533 449 1,061 866 Occupancy and equipment 104 111 210 222 Depreciation and amortization 55 71 114 147 Communications 61 58 126 118 Professional services 63 44 123 81 Advertising and market development 47 21 109 69 Commissions, clearance and floor brokerage 21 20 44 33 Restructuring charges 2 24 2 24 Impairment charges - - - 5 Other 47 38 87 74 - ------------------------------------------------------------------------------------------------------------------------------------ Total 933 836 1,876 1,639 - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations before taxes on income 179 182 426 279 Taxes on income (66) (56) (152) (79) - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations 113 126 274 200 Loss from discontinued operations, net of tax - - - (3) - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 113 $ 126 $ 274 $ 197 ==================================================================================================================================== Weighted-Average Common Shares Outstanding - Diluted 1,373 1,360 1,374 1,358 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share - Basic Income from continuing operations $ .08 $ .10 $ .20 $ .15 Loss from discontinued operations, net of tax - - - - Net income $ .08 $ .10 $ .20 $ .15 Earnings Per Share - Diluted Income from continuing operations $ .08 $ .09 $ .20 $ .14 Loss from discontinued operations, net of tax - - - - Net income $ .08 $ .09 $ .20 $ .14 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends Declared Per Common Share $ .020 $ .011 $ .034 $ .022 - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Statement of Income and Financial and Operating Highlights.
THE CHARLES SCHWAB CORPORATION Financial and Operating Highlights (Unaudited) | 2004 | 2003 | 2002 | - ------------------------------------------------------------------------------------------------------------------------------------ Second First Fourth Third Second First Fourth Third Second (In millions, except per share amounts and as noted) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Revenues (1) Asset management and administration fees $ 514 $ 505 $ 485 $ 467 $ 445 $ 428 $ 433 $ 431 $ 444 Commissions 286 390 334 320 313 240 297 305 290 Interest revenue, net of interest expense 224 210 193 181 180 175 189 204 213 Principal transactions 40 52 47 45 43 33 37 47 49 Other 48 33 59 38 37 24 30 33 41 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,112 1,190 1,118 1,051 1,018 900 986 1,020 1,037 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses Excluding Interest (1) Compensation and benefits 533 528 460 445 449 417 433 466 470 Occupancy and equipment 104 106 111 108 111 111 118 109 114 Depreciation and amortization 55 59 66 71 71 76 77 78 80 Communications 61 65 63 62 58 60 61 62 63 Professional services 63 60 54 45 44 37 38 41 46 Advertising and market development 47 62 38 32 21 48 55 50 51 Commissions, clearance and floor brokerage 21 23 23 21 20 13 17 19 17 Restructuring charges (2) 2 - 20 37 24 - 170 159 3 Impairment charges - - - - - 5 37 - - Other 47 40 49 33 38 36 49 37 32 - ------------------------------------------------------------------------------------------------------------------------------------ Total 933 943 884 854 836 803 1,055 1,021 876 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before taxes on income (loss) 179 247 234 197 182 97 (69) (1) 161 Tax (expense) benefit on income (loss) (1) (66) (86) (86) (73) (56) (23) 18 - (60) - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations 113 161 148 124 126 74 (51) (1) 101 Gain (loss) from discontinued operations, net of tax - - - 3 - (3) (28) (3) (3) - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) $ 113 $ 161 $ 148 $ 127 $ 126 $ 71 $ (79) $ (4) $ 98 ==================================================================================================================================== Basic earnings (loss) per share $ .08 $ .12 $ .11 $ .09 $ .10 $ .05 $ (.06) $ - $ .07 Diluted earnings (loss) per share $ .08 $ .12 $ .11 $ .09 $ .09 $ .05 $ (.06) $ - $ .07 Dividends declared per common share $ .020 $ .014 $ .014 $ .014 $ .011 $ .011 $ .011 $ .011 $ .011 Weighted-average common shares outstanding - diluted 1,373 1,375 1,371 1,366 1,360 1,357 1,340 1,358 1,385 - ------------------------------------------------------------------------------------------------------------------------------------ Performance Measures Revenue growth (decline) over prior year's quarter (3) 9% 32% 12% 3% (2%) (14%) (6%) 4% (2%) Adjusted operating income (4) $ 114 $ 161 $ 150 $ 147 $ 130 $ 63 $ 90 $ 99 $ 109 After-tax profit margin - reported 10.2% 13.5% 13.2% 12.1% 12.3% 7.9% (8.0%) (.4%) 9.5% After-tax profit margin - operating (4) 10.3% 13.5% 13.6% 14.0% 12.7% 7.0% 9.1% 9.7% 10.5% Return on stockholders' equity (5) 10% 14% 13% 12% 12% 7% (8%) - 9% - ------------------------------------------------------------------------------------------------------------------------------------ Financial Condition (at quarter end) Cash and investments segregated (in billions) $ 20.5 $ 20.8 $ 21.3 $ 22.4 $ 22.6 $ 22.3 $ 21.0 $ 19.2 $ 17.6 Receivables from brokerage clients (in billions) $ 9.3 $ 9.3 $ 8.6 $ 7.7 $ 7.0 $ 6.3 $ 6.8 $ 7.1 $ 8.5 Total assets (in billions) $ 47.3 $ 46.3 $ 45.9 $ 43.8 $ 41.8 $ 40.4 $ 39.7 $ 37.6 $ 37.6 Payables to brokerage clients (in billions) $ 26.9 $ 26.5 $ 27.2 $ 26.1 $ 26.2 $ 25.8 $ 26.4 $ 24.8 $ 24.6 Long-term debt (in millions) $ 645 $ 779 $ 772 $ 776 $ 811 $ 856 $ 642 $ 652 $ 751 Stockholders' equity (in millions) $4,732 $4,662 $4,461 $4,312 $4,179 $4,056 $4,011 $4,143 $4,345 - ------------------------------------------------------------------------------------------------------------------------------------ Other Full-time equivalent employees (at quarter end, in thousands) 16.7 16.9 16.3 16.0 16.1 16.5 16.7 18.8 19.1 Capital expenditures - cash purchases of equipment, office facilities, property, and internal-use software development costs, net (in millions) $ 53 $ 35 $ 52 $ 36 $ 33 $ 32 $ 46 $ 42 $ 40 - ------------------------------------------------------------------------------------------------------------------------------------ Clients' Daily Average Trading Volume (in thousands) (6) Daily average revenue trades (7) 142.2 178.0 161.7 145.1 141.0 114.6 131.6 129.1 129.1 Mutual Fund OneSource(R) and other asset-based trades 67.4 72.3 62.3 58.0 57.1 54.3 51.9 56.5 57.5 - ------------------------------------------------------------------------------------------------------------------------------------ Active Trader Daily Average Revenue Trades (in thousands) (6,7,8) 72.5 91.5 80.8 72.9 69.5 54.5 61.1 58.2 59.6 - ------------------------------------------------------------------------------------------------------------------------------------ Average Revenue Per Revenue Trade (7) $34.87 $37.59 $35.20 $36.96 $37.73 $37.30 $37.48 $39.71 $38.02 - ------------------------------------------------------------------------------------------------------------------------------------ (1) All periods in 2002 have been adjusted to summarize the impact of The Charles Schwab Corporation's (the Company's) sale of its United Kingdom (U.K.) brokerage subsidiary, Charles Schwab Europe, in gain (loss) from discontinued operations. (2) Restructuring charges include costs relating to workforce, facilities, systems hardware, software, and equipment reductions. (3) Excludes non-operating revenue, which primarily consists of a gain on the sale of an investment in the fourth quarter of 2003. (4) Represents a non-GAAP income measure which excludes non-operating revenue, restructuring charges, impairment charges, acquisition- and merger-related charges, and gain (loss) from discontinued operations, net of taxes, as well as a non-recurring tax benefit. See attached reconciliation of net income to adjusted operating income. (5) Calculated based on annualized quarterly net income (loss) and average stockholders' equity for the quarter. (6) Effective in the third quarter of 2003, the Company considers reduced exchange trading sessions as half days in calculating daily average trades. (7) Revenue trades include all client trades (both individuals and institutions) that generate either commission revenue or revenue from principal markups (i.e., fixed income); also known as DART. (8) Active Trader includes all CyberTrader clients and Schwab clients enrolled in one of Schwab's three Active Trader offers. Active Trader DART is included in total DART above. See Notes to Consolidated Statement of Income and Financial and Operating Highlights.
THE CHARLES SCHWAB CORPORATION Reconciliation of Net Income to Adjusted Operating Income (Unaudited) | 2004 | 2003 | 2002 | - ------------------------------------------------------------------------------------------------------------------------------------ Second First Fourth Third Second First Fourth Third Second (In millions) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Revenues $1,112 $1,190 $1,118 $1,051 $1,018 $ 900 $ 986 $1,020 $1,037 Non-operating revenue (1) - - (17) - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues $1,112 $1,190 $1,101 $1,051 $1,018 $ 900 $ 986 $1,020 $1,037 ==================================================================================================================================== Net income (loss) $ 113 $ 161 $ 148 $ 127 $ 126 $ 71 $ (79) $ (4) $ 98 Adjustments to reconcile net income (loss) to adjusted operating income: Other income (1) - - (17) - - - - - - Restructuring charges (2) 2 - 20 37 24 - 170 159 3 Impairment charges - - - - - 5 37 - - Acquisition- and merger-related charges - - - - - - - - 11 Loss (gain) from discontinued operations (3) - - - (5) - 5 42 5 5 - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items 2 - 3 32 24 10 249 164 19 Tax benefit (4) (1) - (1) (12) (20) (18) (80) (61) (8) - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items, net of tax 1 - 2 20 4 (8) 169 103 11 - ------------------------------------------------------------------------------------------------------------------------------------ Adjusted operating income, after tax (5) $ 114 $ 161 $ 150 $ 147 $ 130 $ 63 $ 90 $ 99 $ 109 ==================================================================================================================================== (1) Primarily consists of a pre-tax gain recorded on the sale of an investment. (2) Restructuring charges reflect The Charles Schwab Corporation's (the Company's) 2004 cost leadership effort and previous restructuring initiatives under the Company's plan to reduce operating expenses due to continued economic uncertainties and difficult market conditions. These charges primarily include workforce, facilities, systems hardware, software, and equipment reductions. (3) Represents the summarized impact of the Company's sale of its U.K. brokerage subsidiary. (4) Includes an $11 million non-recurring tax benefit in the second quarter of 2003 and a $16 million tax benefit associated with the Company's sale of its U.K. market-making operation in the first quarter of 2003. (5) In evaluating the Company's financial performance, management uses adjusted operating income, a non-GAAP income measure which excludes items as detailed in the table above. Management believes that adjusted operating income is a useful indicator of its ongoing financial performance, and a tool that can provide meaningful insight into financial performance without the effects of certain material items that are not expected to be an ongoing part of operations.
THE CHARLES SCHWAB CORPORATION Notes to Consolidated Statement of Income and Financial and Operating Highlights (Unaudited) The Company The consolidated statement of income and financial and operating highlights include The Charles Schwab Corporation and its majority-owned subsidiaries (collectively referred to as the Company), including Charles Schwab & Co., Inc., U.S. Trust Corporation, Schwab Capital Markets L.P., and CyberTrader, Inc. The consolidated statement of income and financial and operating highlights should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2003 Annual Report to Stockholders and the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2004. Certain prior periods' revenues and expenses have been reclassified to conform with the current period presentation. All material intercompany balances and transactions have been eliminated. ********** THE CHARLES SCHWAB CORPORATION Growth in Client Assets and Accounts (Unaudited) | 2004 | 2003 | 2002 | - ------------------------------------------------------------------------------------------------------------------------------------ Second First Fourth Third Second First Fourth Third Second (In billions, at quarter end, except as noted) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Assets in client accounts Schwab One(R), other cash equivalents and deposits from banking clients $ 36.5 $ 35.4 $ 34.2 $ 31.8 $ 30.2 $ 31.1 $ 31.1 $ 29.0 $ 28.6 Proprietary funds (SchwabFunds(R), Excelsior(R) and other): Money market funds 115.0 116.3 119.2 124.4 126.8 132.4 129.7 129.2 126.7 Equity and bond funds 37.5 36.8 34.2 30.7 31.2 27.4 27.7 26.8 30.9 - ------------------------------------------------------------------------------------------------------------------------------------ Total proprietary funds 152.5 153.1 153.4 155.1 158.0 159.8 157.4 156.0 157.6 - ------------------------------------------------------------------------------------------------------------------------------------ Mutual Fund Marketplace(R) (1): Mutual Fund OneSource(R) 115.2 115.1 101.5 90.1 85.0 71.8 73.6 70.0 81.6 Mutual fund clearing services 33.9 37.5 33.5 28.4 24.5 21.4 21.2 19.8 21.9 All other 101.7 100.5 98.4 88.3 84.6 71.6 71.6 68.5 75.9 - ------------------------------------------------------------------------------------------------------------------------------------ Total Mutual Fund Marketplace 250.8 253.1 233.4 206.8 194.1 164.8 166.4 158.3 179.4 - ------------------------------------------------------------------------------------------------------------------------------------ Total mutual fund assets 403.3 406.2 386.8 361.9 352.1 324.6 323.8 314.3 337.0 - ------------------------------------------------------------------------------------------------------------------------------------ Equity and other securities (1) 418.2 414.0 408.5 355.9 338.2 287.9 294.7 272.9 323.3 Fixed income securities (2) 149.4 149.8 145.7 134.6 131.1 125.2 121.8 117.5 116.5 Margin loans outstanding (9.1) (9.1) (8.5) (7.5) (6.9) (6.2) (6.6) (6.9) (8.4) - ------------------------------------------------------------------------------------------------------------------------------------ Total client assets $998.3 $996.3 $966.7 $876.7 $844.7 $762.6 $764.8 $726.8 $797.0 ==================================================================================================================================== Net growth in assets in client accounts (for the quarter ended) Net new client assets (3) $ 6.7 $ 13.8 $ 24.9 $ 10.6 $ 6.5 $ 14.2 $ 10.1 $ 10.6 $ 11.5 Net market gains (losses) (4.7) 15.8 65.1 21.4 75.6 (16.4) 27.9 (80.8) (72.2) - ------------------------------------------------------------------------------------------------------------------------------------ Net growth (decline) $ 2.0 $ 29.6 $ 90.0 $ 32.0 $ 82.1 $ (2.2) $ 38.0 $(70.2) $(60.7) ==================================================================================================================================== U.S. Trust client assets (4) $137.0 $135.8 $137.2 $116.1 $114.0 $106.7 $108.0 $106.1 $115.3 - ------------------------------------------------------------------------------------------------------------------------------------ New client accounts (in thousands, for the quarter ended) 139.1 159.8 145.5 123.9 151.9 171.0 154.5 159.6 224.6 Active client accounts (in millions) (5) 7.5 7.5 7.5 7.6 7.7 8.0 8.0 8.0 8.0 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Excludes all proprietary money market, equity, and bond funds. (2) Includes certain other securities serviced by Schwab's fixed income division, including exchange-traded unit investment trusts, real estate investment trusts, and corporate debt. (3) Includes an individual outflow of $6.0 billion in the second quarter of 2004 related to a mutual fund clearing client and inflows of $12.1 billion in the fourth quarter of 2003 at U.S. Trust related to the acquisition of State Street Corporation's Private Asset Management group. (4) Included in total client assets above. (5) Active client accounts are defined as accounts with balances or activity within the preceding eight months. Reflects the removal of 192,000 accounts in the second quarter of 2003 related to the Company's withdrawal from the Employee Stock Purchase Plan business and the transfer of those accounts to other providers.
The Charles Schwab Corporation Monthly Market Activity Report For June 2004 Investor activity for 7.5 million active client accounts (1) Clients opened 37,500 new accounts during June 2004. 2003 2004 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May - ------------------------------------------------------------------------------------------------------------------------------------ Change in Client Assets (in billions of dollars) Net New Assets (2) 2.8 3.9 3.7 3.0 3.1 16.4 5.4 5.9 3.3 4.6 2.1 4.4 Net Market Gains (Losses) 8.4 8.5 15.1 (2.2) 33.1 8.9 23.1 16.3 8.5 (9.0) (24.7) 6.8 - ------------------------------------------------------------------------------------------------------------------------------------ Total Client Assets (at month end, in billions of dollars) 844.7 857.1 875.9 876.7 912.9 938.2 966.7 988.9 1,000.7 996.3 973.7 984.9 ==================================================================================================================================== Market Indices (at month end) Dow Jones Industrial Average 8,985 9,234 9,416 9,275 9,801 9,782 10,454 10,488 10,584 10,358 10,226 10,189 Nasdaq Composite 1,623 1,735 1,810 1,787 1,932 1,960 2,003 2,066 2,030 1,994 1,920 1,987 Standard & Poor's 500 975 990 1,008 996 1,051 1,058 1,112 1,131 1,145 1,126 1,107 1,121 Schwab 1000 3,120 3,181 3,243 3,202 3,384 3,418 3,572 3,633 3,681 3,629 3,560 3,605 Clients' Daily Average Revenue Trades (in thousands) (3) 159.3 148.6 126.8 159.9 156.0 161.4 168.4 215.1 166.9 155.0 164.6 135.1 Clients' Daily Average Mutual Fund OneSource(R) and Other Asset-Based Trades (in thousands) (4) 58.3 57.7 54.8 61.5 59.7 61.3 66.0 79.9 68.5 68.7 71.9 66.8 Daily Average Market Share Volume (in millions) NYSE 1,516 1,451 1,200 1,437 1,430 1,293 1,276 1,663 1,481 1,477 1,525 1,500 Nasdaq 2,032 1,772 1,471 1,943 1,827 1,821 1,637 2,332 1,917 1,881 1,951 1,664 - ------------------------------------------------------------------------------------------------------------------------------------ Total 3,548 3,223 2,671 3,380 3,257 3,114 2,913 3,995 3,398 3,358 3,476 3,164 ==================================================================================================================================== Mutual Fund Net Buys (Sells) (5) (in millions of dollars) Domestic Growth 957.0 910.8 945.0 913.0 1,086.5 848.1 745.7 2,030.7 1,065.2 421.0 662.0 (126.6) International Growth 121.1 369.8 449.0 142.8 698.1 405.8 534.6 1,020.4 769.4 685.1 579.3 118.1 Balanced (stock and bond) 698.4 421.7 621.8 562.1 560.7 478.9 501.8 1,141.4 702.6 768.2 535.0 108.1 Bond - Taxable 336.4 (515.1) (511.3) 83.3 358.6 191.1 96.0 535.2 563.9 1,151.4 (117.9) (301.2) Bond - Tax Advantaged 3.7 (106.7) (71.0) (63.6) (58.0) (56.3) (24.5) 19.0 85.7 102.5 (172.0) (245.5) % change Jun Mo. Yr.* - ----------------------------------------------------------- Change in Client Assets (in billions of dollars) Net New Assets (2) .2 (95%) (93%) Net Market Gains (Losses) 13.2 - ------------------------------------------- Total Client Assets (at month end, in billions of dollars) 998.3 1% 18% =========================================== Market Indices (at month end) Dow Jones Industrial Average 10,436 2% 16% Nasdaq Composite 2,048 3% 26% Standard & Poor's 500 1,141 2% 17% Schwab 1000 3,665 2% 17% Clients' Daily Average Revenue Trades (in thousands) (3) 126.6 (6%) (21%) Clients' Daily Average Mutual Fund OneSource(R) and Other Asset-Based Trades (in thousands) (4) 63.4 (5%) 9% Daily Average Market Share Volume (in millions) NYSE 1,371 (9%) (10%) Nasdaq 1,623 (2%) (20%) - ----------------------------------------------------------- Total 2,994 (5%) (16%) =========================================================== Mutual Fund Net Buys (Sells) (5) (in millions of dollars) Domestic Growth 801.5 International Growth 513.8 Balanced (stock and bond) 416.8 Bond - Taxable 311.9 Bond - Tax Advantaged (148.8) (1) Active client accounts are defined as accounts with balances or activity within the preceding eight months. (2) June 2004 and August 2003 data include individual (outflows) inflows of ($6.0) billion and $0.6 billion, respectively, related to mutual fund clearing clients. March 2004 and January 2004 data include individual outflows of $0.8 billion and $0.5 billion, respectively, at U.S. Trust related to Special Fiduciary business clients. February 2004 data includes an individual outflow of $1.8 billion at U.S. Trust related to a custody relationship. January 2004 data includes inflows of $1.3 billion related to the Company's adoption of AXA Rosenberg LLC's U.S. family of mutual funds, known as the Laudus Funds(TM). Data excludes mutual fund capital gains reinvestments, which were $1.1 billion in December 2003. November 2003 data includes inflows of $12.1 billion at U.S. Trust related to the acquisition of State Street Corporation's Private Asset Management group. (3) Includes all client trades (both individuals and institutions) that generate either commission revenue or revenue from principal markups (i.e., fixed income); also known as DART. (4) Includes trades executed on Schwab's no-transaction fee Mutual Fund OneSource(R) platform, trades placed through Schwab's mutual fund clearing service, and trades placed by investment advisors and individual investors enrolled in an asset-based pricing program or offer. (5) Represents the principal value of client mutual fund (no-load, low-load, load) transactions handled by Schwab and U.S. Trust, including transactions in SchwabFunds(R), Excelsior(R) Funds and other proprietary funds. Includes institutional funds available only to Investment Managers. Excludes money market funds. * June 2004 vs. June 2003 The Charles Schwab Corporation
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